The history of copy trading: How did it all start? 

We can trace the existence of trading back to several centuries. At first, traders of different goods like cocoa, sugar, metals, or cotton noticed they needed a place where they could keep constant track of the goods’ prices. Exchange was the name of this idea, and it evolved into trading stocks or cryptocurrencies today. 

Copy trading is part of social trading, where traders share vital information and experiences that can greatly impact a trading journey. Thanks to algorithms, robots, or software, individuals’ trades are copied, allowing newbies to follow the models and replicate transactions. Copy trading can help many enthusiastic individuals, as this technique enables them to copy the trades of an experienced professional, which can be done both automatically and manually. 

At first, people can make many mistakes when starting their trading journey. Still, copy trading removes some of the associated challenges and helps anyone have a better peace of mind while learning from the actions of experts. 

In this article, we will explore the history of copy trading, so keep reading to learn more. 

Copy trading: How did it make its way into the world?

Copy trading appeared for the first time in 2005, and it evolved from mirror trading. In the beginning, traders used automated trading, where they copied certain algorithms. Experienced traders started to share their trading history to offer beginners the opportunity to take a look and copy their strategies. This approach opened the doors to social trading networks, and traders started to copy the exact actions of a person on their personal trading accounts. 

However, this process had to improve a little so that it could be used on a larger scale. Additionally, the process of interacting with the trader had to get better. Now, anyone can look at a trading portfolio and the past performance of a trader to learn something from their actions. Copy trading brought more transparency between traders, which is why this method has boosted in popularity. 

What are the advantages of copy trading? 

It isn’t for nothing that copy trading has started to be popular. Copy trading allows beginners to have better portfolio management, as they can track the actions of experienced professionals and trust them to copy their actions. Thanks to copy trading, individuals can monitor various strategies of successful traders, and in this way, they can achieve quite the same results. 

Copy trading applies the most to those individuals who don’t have that much time to research the market by themselves. As trading is quite a complex task, individuals should first understand all the notions from this space, and only after understanding everything they could start their trading journey. This implies a long process that doesn’t occur overnight. So, copy trading is perfect for those who don’t have much free time to analyze market movements. 

Copy traders allow individuals to have a diversified portfolio and access to various markets, which is the best approach in a space that is characterized by volatility. Individuals can benefit from copy trading if they are considering traders who trade different instruments. 

What are the risks of copy trading? 

Copy trading also has some risks, so it is vital to know them to diminish the chance of losing money. For example, market risk can be present in copy trading, and it implies going through losses because the value of an asset has reduced. As mentioned above, diversification is a proactive approach to prepare against this outcome, where only a small part of funds will be allocated to a certain asset. By spreading funds to various assets, traders won’t lose their entire capital. 

How do you choose a trader for copy trading? 

If you want to start your copy trading journey, you should focus on one important part the most: choosing the trader to whom you are going to copy their strategies and actions. There are many facts to take into account in this part, such as:

Performance History

The performance history is significant, and it should be the first thing you pay attention to when choosing the trader you are going to copy. So, consider their win rate, profitability, and trading history. 

Risk tolerance

Risk tolerance is also good to pay attention to, as you can pick someone who has quite the same risk tolerance as you. If you are choosing a trader who prefers aggressive strategies, this might not meet your expectations, and you might end up experiencing losses. So, find someone who has the same risk tolerance as you if you want to have a good experience. 

Trading strategy and style

The trading strategy and style are also very important when you are looking for a trader to start your copy trading journey. Various strategies are used, and it is essential to find one that matches your personal preferences. For example, day trading is a common copy trading strategy, where traders buy and sell an asset in a single day and focus on short-term price movements. 

Swing trading is good if you prefer a medium-term approach. This trading strategy implies holding an asset for several weeks or days. If you are looking for a long-term trading style, you can choose position trading, where traders can hold their assets for months or weeks. 

Communication

As you are copying their action, you must also ensure that a trader is transparent and communicates with you or it offers you the possibility to ask questions. Some traders provide explanations of their strategy, and they post market insights or updates to offer individuals the logic behind their actions. If you find a trader doing this, you will have more confidence to start your trading journey. 

The bottom line

Copy trading has turned into a popular approach that traders can use to improve their trading strategy and gain much-needed experience. Copy trading is especially beneficial for beginners, who are more inclined to make mistakes at first. However, as they are copying the actions of experienced individuals, they can diminish many risks.